Kiel Working Papers, Kiel Institute for World Economics
No 1271:
Efficient Abatement in Separated Carbon Markets: A Theoretical and Quantitative Analysis of the EU Emissions Trading Scheme
Sonja Peterson
Abstract: The European Emissions Trading Scheme for CO2 established
in 2005 is the world's largest emissions trading scheme. Since it covers
only some sectors of the European economies it can nevertheless not ensure
that the Kyoto targets are reached at minimal cost. This paper first
analyzes the conditions for cost efficiency in the current separated carbon
markets accounting also for the possibilities of purchasing international
carbon credits from outside the EU. A computable general equilibrium model
is then used to assess the cost efficiency of current EU climate
strategies. Finally, based both on the theoretical as well as the
quantitative analysis, recommendations are derived for a better allocation
of the reduction burden between the sectors participating in emissions
trading, those that do not participate and international carbon
purchases.
Keywords: emissions trading, allocation, efficiency, separated markets; (follow links to similar papers)
JEL-Codes: H21,; D61,; Q48,; D58; (follow links to similar papers)
24 pages, March 2006
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